Greenspan Calls Brexit A ‘Terrible Outcome’ ” It’s a terrible outcome in all respects”; Scotland Is Next

In an exclusive interview with Bloomberg Televsion and Bloomberg Radio, Former Federal Reserve Chairman Alan Greenspan discussed how U.K. policy makers miscalculated the Brexit outcome and how Scotland may now choose independence from Britain. Story link, quotes, and transcript below.

Greenspan stated:

“I think they’ve made a terrible mistake… It’s a terrible outcome in all respects.”

“So I think that we’re going to get very soon a significant renewal of the referendum on Scotland and I’m almost certain it’s going to pass.”

“The real problem in Europe is the Euro, which I always thought was an unstable currency.”

“The EU is fundamentally a very good idea,” Greenspan said. “It’s a free trade-zone structure, which we need an awful lot of, so that the choice of Britain to stay in the EU and yet out of the euro zone was, I thought, the most sensible action that could be taken.”

“I think the vulnerable institution right now is the Eurozone, because as I said before, there is no backup to the ECB yet.”

Alan Greenspan: U.K. Brexit a ‘Terrible Mistake’

Greenspan Calls Brexit a ‘Terrible Outcome’ as Euro Area Tested

U.K. policy makers miscalculated and made a “terrible mistake” in holding a referendum on whether to quit the European Union, in which voters opted to leave the bloc, former Federal Reserve Chairman Alan Greenspan said.

That decision led to a “terrible outcome in all respects,” Greenspan said in an interview with Bloomberg Surveillance on Monday in Washington. “It didn’t have to happen.”

The U.K. stunned the world last week after voting to leave the EU after more than four decades, a move that sent financial markets into turmoil. The pound on Monday extended its drop to touch the lowest against the dollar since 1985, while central bankers around the world have pledged to support liquidity.

It’s now likely that Scotland, whose majority of voters wanted to stay in the EU, will have another referendum on its own independence, Greenspan said. He predicted such a vote would be successful, and Northern Ireland would “probably” go the same way.

Greenspan said he did not have sympathy for the idea that the U.K. would be better off outside the EU, despite the problems the bloc faces in a structure where countries with different economies and cultures share the same currency.

“The EU is fundamentally a very good idea,” Greenspan said. “It’s a free trade-zone structure, which we need an awful lot of, so that the choice of Britain to stay in the EU and yet out of the euro zone was, I thought, the most sensible action that could be taken.”

The U.K.’s decision to exit is a sign that the EU and euro zone need readjustment away from a model where northern nations are supporting those in the south, Greenspan said.

The euro zone is the truly “vulnerable institution,” Greenspan said, primarily due to Greece’s inclusion in its structure. “Get Greece out. They’re a toxic liability sitting in the middle of a very important economic zone.”

Televsion Transcript:

TOM KEENE, BLOOMBERG ANCHOR: We welcome now to television worldwide, Bloomberg Television worldwide, our conversation with Alan Greenspan. Michael, why don’t you pick it up? We’ve been on radio for a bit. Let’s pick it up for our television audience as well.

MICHAEL MCKEE, BLOOMBERG ANCHOR: Well, Mr. Chairman, you said a little earlier, you have said in the past that the euro has become something of a failed experiment here. Does that suggest that you think the British are right to be concerned about being in the European Union? Leave aside the damage that may be caused by leaving, but do you have any sympathy for the idea that they’re better off outside?

ALAN GREENSPAN, FORMER CHAIRMAN, FEDERAL RESERVE BANK: No, there’s a fundamental difference between being in a structure where everybody is forced into the same currency irrespective of differentials and culture, economic status, and a variety of other things. The E.U. is fundamentally a very good idea. It’s a free trade zone structure which we need an awful lot of, so that the choice of Britain to stay in the E.U. and get out of the Eurozone was, I thought, the most sensible action that could be taken. And Gordon Brown, who was instrumental in that decision, I think, ought to be distressed by what is going on, because I know (ph) him.

MCKEE: Well the question comes up, if the Eurozone itself is failed experiment, and one of the problems they have is the lack of a fiscal authority, the only way they can get there is to centralize more power in Brussels, which is exactly what the United Kingdom doesn’t want.

GREENSPAN: Well, but the problem with the euro isn’t going to be solved by that. The problem with the euro is much more fundamentally difficult, which is going to arise surely. Let me suggest something that nobody discusses, and I think it ought to be discussed. If the Federal Reserve, I should say — if the Federal Reserve were to run into financial trouble and dollar were in very extreme case, the sovereign credit of the dollar, back — I should say, so which the Treasury Department would back up the Federal Reserve and there’d be no problem. There is no backup on the European Central Bank. I mean, theoretically, the Maastricht Treaty has gotten means by which they would be financed if they got into trouble, but that’s not going to happen.

KEENE: But that speaks to the fractious nature here. It speaks to, I think of Barry Eichengreen at Berkeley talking about the exorbitant privilege — where’s the leadership to drive a solution? We’ve been saying this now for four and five days — we remember Valerie, she started (inaudible) Charles de Gaulle at an hour of Germany. I believe the name Greenspan from the United States. Do you observe leaders that can make tough decisions as the acclaimed Chancellor Merkel has made?

GREENSPAN: Well yes, I mean, Tony Blair and Gordon Brown made some very —

KEENE: They’re not in office right now. Do you see leaders —

GREENSPAN: I was about to say that. And I don’t see anybody to match them. So the basic problem is, it’s very difficult for somebody from the United States, no longer in government — I don’t have direct daily contact as I did for 20 years —

KEENE: You’ve not been speaking with Mr. Trump recently?

GREENSPAN: No.

MCKEE: (laughter) We may want to get back to that later. If you were still at the Fed, if you go into your office at 20th and C Street on Friday, how do you think about it, as a central banker? You lived through market meltdowns before. What’s the first thing you do? What kind of conditions within your bank do you try to establish?